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What's New - Legal News You can use:We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code. Descriptions of Chapter 7 and Chapter 13 Bankruptcy plans available below. This page contains articles written by Henry J. Kroeger III regarding important decisions and changes in law mainly pertaining to Bankruptcy and Negligence legal issues. Older articles will be archived at the bottom of this form by date.
This Article is prepared by Attorney Henry J. Kroeger III as a continuation of a series of articles as published on the Internet at this web site for use by the public at large. It is not intended and should never be used as a substitute for legal advise or consultation with an Bankruptcy Lawyer. The information below is gathered from the authors' twenty years of experience as a Consumer Bankruptcy lawyer and provides the reader with some basic information and guidelines on the subjects below.
It must be stressed that, like all written laws or Statutes, the courts are continually issuing decisions which interpret these laws. Therefore, in some topics discussed below there are no definitive answers which apply to the entire United States. The U.S. Bankruptcy Courts are Federal Courts and as such are divided into various "Districts"each covering several states or "districts". There may be one or more Bankruptcy Courts in each state, and there are several states contained within one federal district. When a Bankruptcy Courts' decision is appealed it is filed in the appropriate Federal District Court. These Districts each cover certain geographical areas or sections of the United States. Therefore, a particular Bankruptcy Court which has interpreted one law in a particular way in NY, or in the Second District, may be at odds with a Court who has interpreted that law differently in MA, or in the First District. For example, the Federal Appeals Court for the Second District has ruled that debtors in bankruptcy who have a secured loan need not sign a re-affirmation agreement to retain the collateral, but may keep same by making voluntary payments. However, the Federal Appeals Court for the First District has recently ruled that the debtor must sign the re-affirmation agreement in order to retain the same collateral. Therefore, any legal decision regarding the areas discussed below must be checked against the local courts where you have filed or plan to file your bankruptcy. Most of the information below applies to consumer debtors and not debtors in business for themselves, Chapter Thirteen or Chapter Eleven bankruptcies. ONE: The Failure to list all creditors (credit card debt, consumer debt, secured debt, etc): First, it is a requirement that you list all creditors when you file your petition. You sign the Petition under penalties of perjury and other criminal sanctions and swear that you have listed all creditors to the best of your knowledge and belief. Second, you should not be afraid to list all creditors/debts as although the law requires you to list every creditor, you are allowed to make payments to these creditors on a voluntary basis after your petition has been filed and your discharge granted. You cannot make payments which exceed the sum of $600.00 to creditors within 90 days before the filing of your petition( exceptions are for secured debts like autos and mortgages). In addition you cannot repay an insider(like a family member) a sum which exceeds 600.00 within one year before the date of the filing of the petition. See Section 547 of 11 U.S.C. Third, in the event you fail to list a creditor and do not amend your petition to include same, you may remain legally obligated on this debt for the next seven years in that you cannot file another Chapter Seven Petition for six full years from or creditors the date of your initial filing. Lastly, the intentional omission of a creditor, credit card debt, consumer debt, secured debt, etc., can be grounds to deny, or revoke your discharge in bankruptcy and may also constitute a crime as punishable and defined by Title 18 USC Section 152. This Section also calls for penalties of five thousand dollars and/or up to five years imprisonment for the wilful concealment of assets and other fraudulent acts in the filing and process of your bankruptcy. It is the debtors obligation to find and list the creditors/debts accurately. Once the bankruptcy is complete and the discharge effective, there sometimes arises a problem with a debt which was not listed. How is it now treated? Section 523(a)(3) provides that debts not listed or listed improperly are not discharged. However, in Chapter Seven cases only, even these debts may be considered discharged if the following conditions are met: that the Chapter Seven was a "no asset" case, that the failure to list was unintentional and that it was not a debt obtained by fraud or one for intentional injury. However, in order to stop collection efforts or litigation, the debtor may be forced to return to bankruptcy court to have this matter litigated and decided which will involve additional attorneys fees. Therefore, it is always the best policy to list all creditors and if an omission has occurred and your bankruptcy case closed, seek the advise of a local experienced bankruptcy lawyer who can best advise you on the local case law ruling as applied to your particular situation. TWO: The non disclosure of all assets The non disclosure of assets in your bankruptcy is a serious omission and if intentional is grounds for the denial, or revocation of your bankruptcy discharge. It may also be grounds to seek criminal prosecution against you, see Title 18 USC, Section 152 as indicated above. All assets should be discussed openly and honestly with your attorney who can then advise you as to the appropriate bankruptcy chapter. Also, you may consider some pre bankruptcy law planning concerning how best to direct or divert your current income into exempt rather than non exempt assets. The bankruptcy law rules are very strict regarding the transfer of assets before you file bankruptcy, therefore the simple solution of transferring assets before filing does not work. In general, assets transferred within one year of filing may be voided by the trustee if at the time the debtor was, or was made to become, insolvent. There are other conditions to the power of the Trustee to void these transfers, but it best not to test this principle unless you and your attorney have a complete understanding of Section 548 of 11 U.S.C and its' relevant case law. If the transfer is avoided it becomes property of the Bankruptcy Estate and may be sold by the Trustee. THREE: Excess payment to insiders: Section 547 of 11 U.S.C speaks to payments made to so-called "insiders" which have occurred one year prior to the filing of a petition. The payment more than $600 to any insider within one year of filing is subject to recapture by the Trustee. There are exceptions to this rule which are too numerous for discussion here in that the definition of an "insider", which is located at Section 101(31) of 11U.S.C., may or may not apply. It is enough to simply indicate here that the debtor should be aware of the general rule or prohibition of payment to insiders within one year of filing and to make your attorney aware of same for appropriate analysis. FOUR: Failure to examine divorce decrees Since the recent amendment to the Bankruptcy Act regarding marital debts, each debtor intending to file who has been through divorce should have the divorce decree examined by the bankruptcy lawyer. Any debtor planning divorce proceedings, must let the bankruptcy lawyer know so that appropriate bankruptcy planning can be made. The characterization of certain types of debt within the divorce decree as property settlement or alimony can greatly impact bankruptcy. Sections 523(a)(5), 523(a)(15) and 523(a)(18) control divorce related debts. Alimony and support payments are not dischargeable and this mandate is self executing, meaning that these debts pass through bankruptcy without interruption and continue unaffected. However, marital debts such as credit card debt and personal loans, which are addressed in the divorce or separation decree may or may not be dischargeable. If the debtor does not have the ability to pay these debts from income or property or the benefit to the debtor outweighs the detriment to the spouse, the debt will be discharged. In order to determine whether or not it is a dischargeable debt, a determination must be made by the bankruptcy court. This requires that the debtors' spouse file a complaint to determine dischargability in the Bankruptcy Court within the proscribed time limits. The failure to file such a complaint will result in the debt being discharged. Also, the mere designation of a martial debts by the divorce court as part of alimony will not control or mandate its treatment by the bankruptcy court. The bankruptcy court will look to the language of the divorce decree but it will make its' own determination as to whether or not the debt is truly alimony or support in nature. Therefore, before the filing of the petition, the divorce decree should be examined by the bankruptcy lawyer so that the debtor can be properly appraised of any potential problems and conflicts. FIVE: The timing in filing the petition: The filing of the bankruptcy petition invokes what is known as an "automatic stay" as found in Section 362 of 11 U.S.C. This operates as a stay or prohibition against all creditors, preventing them from taking any further steps to collect a debt. This applies to all creditors, including creditors whose debts will not later be discharged in bankruptcy. This can be a very useful tool, especially at tax refund time. For example, if a debtor owes taxes or has defaulted on student loans, his or her tax refund is usually subject to being taken as part payment on that debt. Therefore, if a bankruptcy is contemplated, it should be filed before the tax return and will invoke the automatic stay so that the tax refund is protected and received by the debtor. The automatic stay is extinguished when the bankruptcy is completed or when the court orders same upon application to court by a creditor after a hearing in court. There are other examples of good and bad timing in the filing of the petition, however for the purpose of this article it is enough to simply warn that the debtors entire financial picture should be examined by a competent bankruptcy lawyer. SIX: Failure to make a secured creditor prove secured debt status: If a debt is secured by property, the debtor cannot discharge the debt and retain the property. The debtor can surrender the property and extinguish the debt, retain the property and continue with payment arrangements or retain the property and make a lump sum pay off. Where property is purchased through an unsecured debt structure, like a credit card, the debt is extinguished and the property is retained by the debtor. Therefore, it is very important to determine which are secured debts and which are unsecured. Section 506 of 11 U.S.C. speaks to the determination of secured debt status. It is extremely important that the security agreement which the debtor signed be produced and examined. In instances of very large or expensive purchases, like a home, real estate or a automobile, the security agreement is usually always valid and binding, however, in instances of smaller items, like jewelry, appliances and furnishings, the security agreement may be invalid or not exist at all. If the security agreement is invalid or non existent, the debt may pass through bankruptcy and be discharged. I always recommend that the creditor produce the security agreement for examination and when in doubt as to it's status, list the debt as unsecured on the petition. SEVEN: Failure to negotiate secured debt re-payment: Section 506 of 11 U.S.C provides for the allowance of the secured deebt claim by the creditor to the extent of the value of the property it secures. That portion of the debt which exceeds the value of the property is an unsecured debt and is therefore discharged in a chapter seven matter. Therefore, if the debtor wishes to keep the property and pay on the debt, the debtor must be aware of the value of the collateral so that if the debt exceeds the value, the debtor can re negotiate the loan and reduce the debt to the actual value of the property. In matters of secured debts, creditors sometimes want the debtor to enter into a re-affirmation agreement. A re-affirmation agreement is a written agreement entered into between the debtor and the creditor which legally binds the debtor to the re-payment of the debt despite the bankruptcy. These must be filed with the bankruptcy court and if not signed by the bankruptcy lawyer, must be approved by the court after a hearing in which the debtor must appear. Since, a debtor can sometimes retain the property with voluntary payment arrangements, a re-affirmation is usually not recommended by this author. If one is necessary, the agreement must be carefully negotiated and examined to insure that the property value is worth or equal to the secured debt and to insure that the debtor can afford the payments outlined. If a debtor defaults after entering into a re-affirmation agreement, the creditor is entitled to not only the property, but also to the stated amount in the agreement plus collection and court costs. If the secured property does not cover or equal the amount of the debts, plus collections costs, the debtor is liable for the difference or deficiency. EIGHT: Under/overestimation of monthly expenses: Congress has recently been attempting to amend the bankruptcy law to make it more difficult for individuals with a certain level of income to file and discharge all debts. So far, no amendment has been passed by both Houses of Congress, however clear signals have been sent to the Bankruptcy Trustees and they have now begun to examine the debtors income and expense statement with a more careful eye. Therefore, any debtor whose income exceeds his or her expenses, must have a reasonable explanation as to why he or she should not be made to file a Chapter 13 rather than a Chapter 7. It is very important that all expenses of the debtor be made available and listed fairly and honestly on the debtors schedules. NINE: Assuming all student loans are not dischargeable: Section 523 of U.S.C. addresses the treatment of student loans. In general, student loans which are made, insured or guaranteed by a government unit or made under a program funded in whole or part by a government unit or non profit institution are not discharged in bankruptcy. Therefore, student loans made by private, profit orientated institutions may be dischargeable. The actual loan documents must be checked and inquiries must be made to determine who now holds the actual loan. If the loan was assigned or later guaranteed or insured by a government unit it may now be non dischargeable as it is its status at the time of the filing of the petition which controls. The true status of the loan cannot be verified without diligent inquiry into these matters. In addition, formerly there were two exceptions which enabled a debtor to discharge the loan although it meets all the above requirements for non dischargability. First, the seven year rule which in essence states that if the first payment on the loan became due more than seven years (including all periods of payment suspensions) before the bankruptcy petition is filed, then the whole loan is a dischargeable debt; however this dischargability section was recently eliminated from the Bankruptcy law in its' entirety. It should be noted here that this new law eliminated the seven year rule for all federal student loans for post secondary education as well as loans from community colleges and also trade schools. Second, and now the only remaining dischargability section, is the hardship rule, which allows the loan to be discharged if it presents an undue hardship to the debtor. This requires a court hearing before a bankruptcy judge who will determine whether or not such a hardship exists. The term "undue hardship" has been the subject of many court decisions and the courts do not grant this exception freely. Again, before deciding whether or not to proceed under this and request a hearing, it is best to consult an attorney who is familiar with the decisions as issued by your local bankruptcy court. Lastly, please note that the U.S. Department of Education does contain regulations which allow, under certain circumstances, to have a student loan forgiven in whole or part. TEN: Understanding non dischargability for debts incurred through fraud: Section 523 of U.S.C. is entitled "Exceptions to Discharge" and includes those debts incurred by the debtor through false pretenses, false representation and fraud. This usually arises in the context of personal loans or credit card use. In the event that a creditor feels that the credit or loan may be non dischargeable, the creditor must file a complaint in the Bankruptcy Court and the particular debt and the circumstances surrounding it are examined by the court at a formal hearing where both parties present evidence as to their respective positions. Therefore the debtors past representations to those who have extended credit must be examined. The debtor should be forewarned if a large debt amount is, or may be, subject to being non dischargeable and this can only be accomplished if the debtor provides complete disclosure to the bankruptcy lawyer of the circumstances surrounding the debt creation. In general, there are three methods by which the debtors actions can make a particular debt non dischargeable. First, if the debtor made false pretenses, false representations or committed actual fraud toward the creditor in the attempt to obtain credit or loans. This is not so easily proven by the creditor as there is usually nothing but oral communication with no written evidence. The second method involves the use of a written statement which is materially false, respecting the debtors financial condition and on which the creditor reasonably relied upon in the extension of credit. This almost always involves the credit or loan application submitted by the debtor to the creditor. The most common examples are the substantial misrepresentation of income and assets or the failure to list a substantial amount of current debt or loans outstanding. The creditor will argue that they would not have loaned or extended the credit if they had known the true state of the debtors financial affairs. The law in this regards is vast and complex and there are many court decisions and interpretations which an attorney must be aware of in order to counsel the debtor. However, before the bankruptcy petition is filed the bankruptcy lawyer should inquire of the debtor what information was used and provided by the debtor to the creditor in relation to the acquisition of the loan or credit. It would be futile to file a bankruptcy petition only to discover that a large portion of the debt is, or may be, non dischargeable. Third and lastly, there exists an absolute exception to the discharge of certain consumer debts which were incurred within sixty days of the filing of the petition. Any consumer debts incurred to any single creditor which aggregate more than six hundred dollars within ninety days of filing the petition are presumed to be non dischargeable. In addition, any cash advances aggregating more than one thousand dollars to any single creditor are likewise presumed to be non dischargeable. Therefore, the debtor must examine all of his or her transactions within the last sixty days in compliance with the above rule so as to avoid non dischargability. Also, with respect to any large debts, loans and credit card bills, the debtor should revisit his or her loan application in order to be reasonably sure that it was not materially false or misleading so as to give rise to a complaint from the creditor on the basis of fraud. Revised December
16, 2002.
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